Indirect land use change: A second-best solution to a first-class problem

Concern about the possible effects of biofuels on deforestation have led to assigning biofuel producers with the responsibility for the greenhouse gas (GHG) emissions of the indirect landuse changes (ILUC) associated with their activities when assessing their compliance with biofuel policies. We show that the computation of the ILUC is shrouded with uncertainty; they vary frequently, and are strongly affected by policy choices. If ILUC is introduced, other indirect effects of biofuel may need to be considered, which will increase the cost of biofuel regulations. Concentrating on direct impacts of biofuel policies on eliminating distorted incentives for biofuel production and on efforts to reduce deforestation-wherever it occurs-may be more effective than debating and refining the ILUC.